Do We Owe Baby Boomers Their Imagined Home Equity for Retirement?

Will the baby boomers fund their retirement from succeeding generations home purchases? Should they?

People try to put us d-down
Just because we get around
Things they do look awful c-c-cold
I hope I die before I get old

This is my generation
This is my generation, baby

The Who — My Generation

I don’t know if baby boomers still want to die before they get old, but many are not going to experience the retirement they thought they were.

Baby boomers busted by housing market collapse

I’m a baby boomer who thinks it’s probably time to sell the manse and move to someplace smaller. That’s what I’m thinking, anyway. Barring some nationwide economic miracle, however, that’s not going to happen. Until housing finds its footing again and home prices start to look up, I’m going nowhere, unless I’m keen to lose money.

I have plenty of company. My fellow boomers and I, it appears, are suffering from a serious case of real estate irony. Housing, the very thing that fueled our generation’s legendary mobility and free spending, is keeping us right where we are….

The Urban Land Institute’s study, called “Housing in America: The Next Decade,” divides us into two groups: older and younger…. The older group, aged 55 to 64, will continue to work, either out of necessity or choice. The news here is that just a few years ago, boomer studies were predicting that we’d put off retirement for the latter reason, that we liked the busy-ness of work. Those studies, though, were before the stock market shredded a generation’s 401(k) plans. Now, the money is doing the talking.The real estate takeaway for this older group is, in the institute’s verbiage, that many boomers will be “trapped” in their suburban homes until values recover. Not only are they waiting for their homes’ values to emerge from underwater status, but their houses, the institute says, tend to be bigger and farther out in suburbia than the next generation wants.

The younger boomers (aged 46 to 54) also won’t have an easy time selling their homes. These people are in their prime earning years, but they’re facing flat incomes and the ugly truth that many of them have very little home equity. In the olden days (five years ago), they would have been prime candidates for purchasing vacation homes, a prospect that now, for the aforementioned reasons, is “greatly diminished,” according to the institute.

I could go on, but I’ve typed myself into a deep funk, here in my too-big ol’ house. So I figure I might as well take a glass-half-full view of things: The Urban Land Institute study didn’t say I’d never manage to sell, only that it will take longer than my generation, famous for its I-want-what-I-want-right-now attitude, is used to.

The group most harmed by the real estate bubble is the baby boomers who were relying on their imaginary home equity as their primary retirement nest egg. Boomers fortunate (or unfortunate) enough to live in areas that avoided the housing bubble never believed they had hundreds of thousands of extra equity dollars to create false expectations. Prudent boomers in these areas maintained other savings vehicles, whereas in California even the prudent came to believe outside saving was less important when the appreciation God’s endowed them with so much housing wealth.

Eventually, baby boomers are going to need to convert their housing asset into living cash. For their sake, I hope they don’t use reverse mortgages — the terminal Option ARM for seniors — but more on that for another post. Baby boomers face either downsizing to sell and extract cash equity, or as the article points out, they must stay put. If they either chose to stay or if they are forced to stay, they will need to (1) earn more money through delaying retirement (2) live on less in retirement and-or (3) grow a cancerous reverse mortgage which will leave them homeless and penniless in their old age. The last option being more difficult when many HELOCed themselves out of equity during the good times.

Whatever solution baby boomers hatch, succeeding generations pay the bills either through government entitlements or overpriced homes. As the Keystone Kops in our government attempt to keep the Ponzi Scheme inflated, particularly here in California, generations following the baby boomers are asked to pay higher debt-to-income ratios and assume larger overall debt loads in order to benefit baby boomers. The generation that cashes-out the baby boomers will not receive a similar entitlement. The California Social Contract is dead.